Passing the Cup for the America’s Cup

When it does exist, it won’t be required to disclose who contributed to the estimated $32 million needed to support the city’s bid.

Nothing will prevent city department heads and commissioners from seeking contributions from the contractors and others whose requests they approve.

The public won’t know about any of those contributor behind-the-scenes plays.

Those facts emerged after CitiReport embarked on what became a magical mystery tour trying to find information on what was proclaimed to be a nonprofit San Francisco America’s Cup Organizing Committee that already has opened an office, selected a director, announced plans to hire up to 120 people and joined in a press conference with Mayor Ed Lee.

The California Secretary of State, where nonprofit organizations file, had no record.

The California Attorney General’s office, which monitors charities, had no record.

The U.S. Internal Revenue Service had no record.

Guidestar, the encyclopedia of all nonprofits, had no record.

The San Francisco City Attorney’s Office had no record.

The Mayor’s Office of Economic and Workforce Development (OEWD) had no record.

But Jennifer Matz, who heads that office, delved into it at CitiReport’s request and told us that the group hasn’t yet filed for nonprofit status but is now in the process of applying.

City, Cup Bedfellows

She also informed CitiReport that the nonprofit will be headed by a member of her own staff, Kyri McClellan, who will depart her OEWD city job in the Mayor’s Office for the new position on April 11.

McClellan was the mayor’s staffer who was the point person for the America’s Cup negotiations.

McClellan was in negotiations over the final terms of the contract at the same time she was being considered to head the nonprofit supporting the effort, according to her statements at the city’s Ethics Commission.

McClellan testified at the March 14, 2011 Ethics Commission meeting that she had known about the job possibility for the prior month and a half. While the city signed the America’s Cup agreement by December 31, 2010, discussions continued regarding the contract terms as the Board was evaluating last-minute changes in the contract. Board budget analyst Harvey Rose delivered a report on March 11 calling into question whether the mayor’s negotiations had been faithful to the Board’s direction.

One issue was the mayor’s agreement to increase, by what may be millions of dollars, the financial benefits that will accrue to the America’s Cup committee.

McClellan was prohibited from taking a position with the America’s Cup event under city ethics laws because she was involved in negotiating the contract.

As the San Francisco Bay Guardian reported on April 7, the city Ethics Commission voted unanimously to waive the ethics rules for McClellan out of deference, according to the Guardian’s account, to the opportunity for career advancement for McClellan.

Ethics Commission Deputy Director Mabel Ng explained to the Guardian, the waiver is allowed “in the law itself, it says the commission may waive it … if it would cause extreme hardship,” Ng. “There would be a hardship, because … this is a great opportunity for her, and there was a short timeline for her to do it.”

Pressed on that point, Ng confirmed that the “hardship” in this case was the possibility of being barred from a great job opportunity, not the threat of financial impact or job loss.

Ethics Commission Executive Director told the commissioners at the meeting that McClellan was being offered “a dream job” and he supported the waiver.

Commissioner Charles Ward, while stating he did not want to stand in the way, stated that he was uncomfortable with the waiver request, calling the basis of “hardship” as “kind of forced reasoning.”

Commissioner Studley raised the fact that the organizing committee that is hiring McClellan includes the mayor and members of the board, so restricting McClellan might be “to no avail.” Board President Chiu’s aide Judson True noted that additional negotiations remain, particularly over longterm leases, and that the proposed nonprofit will be valuable in negotiations with the Event Authority, which is the third party to the agreement. For that reason, it was argued that McClellan should not be precluded from now negotiating with the city on behalf of the nonprofit arm of the America’s Cup.

Mayor Ed Lee and Board President David Chiu sent aides to the Ethics Commission to support the waiver request for McClellan.

The amount needed – estimated at $32 million – is just a little less than Jerry Brown’s $36 million spent getting elected as California’s governor.

To raise such a large amount in a short time inevitably will require mega contributions.

It will have to come from sources interested in more than a one-night stand with the City and County of San Francisco.

Matz says that her office “is not fundraising for AC 34” but adds that “OEWD’s website will link to ACOC and all the information it makes available.” Presumably this will include information for potential donors.

Matz states that “ACOC will comply with (and will disclose all contribution in accordance with) all applicable local, state and federal laws.”

Those laws, however, do not require that the nonprofit, to be established as a 501(c) 3, disclose the names of contributors. Those with city contracts, seeking contracts or contract modifications, land use permits or other administrative or legislative actions will not be precluded or identified to the public under current rules.

City officials such as the Port Director, Redevelopment Director or city commissioners are not precluded from soliciting contributions to the nonprofit from those doing business before them. Those solicitations, whether successful or not, also do not have to be publicly disclosed.

Only elected officials, including the mayor and members of the Board of Supervisors, will have to disclose soliciting contributions if the amount donated exceeds $5,000.

Loopholes Big Enough to Sail Through

“We’re finding more loopholes for officials,” said Bob Stern from the Center for Governmental Studies and a recognized expert on clean government laws.

“When we were looking at it, we were looking at officials raising money to benefit themselves,” said Stern of the state’s law, which he helped draft. “We did not look at their role in raising money for charities.”

“How many non-elected officials are raising money from people appearing before them for other groups, not for themselves,” said Stern.

“Here’s what I would suggest,” said Stern. “A law that says you can’t raise money from people affected by your decisions. But the city isn’t going to do that. So I would require them to disclose contacts with anyone appearing before them. Then they should disqualify themselves.”

Stern pointed as well to the hidden expenditures by some nonprofits, citing the recent example of the Fiesta Bowl.

The New York Times reported on March 29 that officials of the Fiesta Bowl, which is a 501 (c) 3, used the nonprofit’s funds to make political contributions, fly politicians around the country, and host an event at a strip club

“Top executives at the Fiesta Bowl funneled campaign contributions to local politicians, flew other Arizona elected officials around the country at the bowl’s expense, racked up a $1,200 bill at a strip club and even spent $30,000 on a birthday party for the chief executive, according to an investigative report commissioned by the bowl’s board of directors.”

Under IRS rules, specific expenses rarely must be disclosed. The Fiesta Bowl expenditures came to light following investigations by the Arizona Republic and an internal report ordered by the Fiesta Bowl’s Board of Directors. The Times obtained the report.

“There’s a whole mood out there to use money anyway they want,” said Stern, who attributed it to private sector business leaders belatedly learning that public business is not conducted on quite the same terms.

The America’s Cup group will have to report the top salaries it pays and the amounts paid to top-level contractors, but otherwise only reports expenses in categories without specifics. This is the same system that allowed the Fiesta Bowl to withhold from public scrutiny its spending to entertain officials at a strip club, pay $30,000 for a birthday party for its director, launder funds to politicians, and pay for junkets for friendly officials.